Date: 15/02/2010
Source: The Department of Trade and Industry
Title: SA: Davies: Speech by the Minister of Trade and Industry, during the Debate on the State of the Nation Address, Parliament

Mr President, in your SONA on Thursday evening you drew our attention to the fact that we were meeting against the backdrop of a global economic crisis. This is a crisis not of our making. It had its origin in the bursting of a financial bubble in the developed work - a bubble caused by a proliferation of speculative activity fuelled by a hands off approach by regulatory authorities mesmerized by narrow free market fundamentalist ideologies. We in SA were largely spared the systemic financial sector implosion some other countries went through. This was largely thanks to a combination of prudent financial regulation, the National Credit Act which limited "reckless lending", and the maintenance of exchange controls - which limited potential exposure of pension funds or municipal accounts to the kind of unsafe investments in derivatives that a number of their counterparts elsewhere had made with disastrous consequences.

We were not, however, able to escape the second order, real economy, effects of what soon became a global economic crisis. The current crisis is sometimes referred to by commentators as the "Great Recession". This term draws attention to the fact that the world has been through the biggest crash since the Great Depression of the 1930s and came perilously close at critical moments to lurching into a depression no less severe than that of the 1930s. It has also been a crisis truly global in character. Nowhere, not even China, escaped bring impacted negatively at some time and to some degree.

It is against that background that we have to record, and grapple with the reality of, the loss of around 900 000 jobs. Most of these jobs lost were in mining - where the crisis produced an abrupt fall in demand and in prices for many mineral products - and in manufacturing which experienced a 30.4% fall in physical volume of production, and suffered 202 000 job losses between October 2008 and December 2009. In manufacturing, among the sub-sectors most affected were those most integrated into global value chains and producing consumer durables dependent on credit finance for their purchase. In SA as elsewhere this included the motor industry which drives at least 6 to 7 other sub sectors and the already fragile clothing and textile sector, which nevertheless continues to provide employment to nearly 100,000 people.

We are fortunately now officially out of recession as is the global economy as a whole. According to latest figures for December manufacturing output was 3.2% higher than in corresponding month 2008 - the first annualised rise for 14 months. But there is still great uncertainty about the durability of the recovery with most analysts agreeing that recovery is fragile and that there is still a risk of double dip recession.

Mr President you referred to the Framework Response agreed in February last year between government, business, labour and community representatives. This response package was indeed unique, and received much favourable comment for being a product of social dialogue with responsibilities assumed by all parties. It was that, I believe, that gave it its resilience and demonstrated the meaning of our slogan "working together we can do more".

Among the main features of the Framework Response was our commitment to push ahead with the then R787bn infrastructure investment programme as our main counter-cyclical response. Your announcement that we will spend R846 billion over the next 3 years on public infrastructure shows that our efforts in this regard will not all peter out once the FIFA World Cup investments have been completed, and that we are, in fact, on course to effect major infrastructure renewal programmes that will continue for many more years.

Other dimensions of the Framework Package include the training layoff programme and the R6, 1 billion facility made available to distressed companies by the IDC.

The training lay off programme basically involves supporting companies to place workers not able to be employed in production due to the recession on training programmes while continuing to darw at least part of their wage. Applications involving 2.219 workers were approved for the pilot project and applications involving a further 831 workers are close to approval. In addition facilitation provided by the CCMA in terms of the Framework and the LRA saved a further 4.482 jobs.

The IDC's R6,1 billion facility envisages assisting companies in distress as the result of recession to the tune of R2,9 billion through 2010, with a further R3,2 billion available for 2011. Between April 2009 and January 2010 around R1 bn of assistance was approved resulting in 7, 854 jobs being saved.

In addition, we have also developed sector specific response packages involving fast tracking certain facilities, to support the motor, clothing and textile and capital equipment and metals fabrications industries.

A feature of many of these programmes is that we have insisted on reciprocal commitments in return for any support government has made available. Generally, this has covered undertakings on refraining from, or moderating through negotiation, retrenchment of workers and refraining from, or moderating, extraordinary bonus on dividend payment to managers and shareholders.

Through these and other crisis response measures, we have I believe been able to save many jobs as well as strategic industrial capacity that would otherwise have been lost most likely irretrievably. Besides, some of the measures in place, notably the training lay offs, will have strengthened the capacity of companies to position themselves ahead of the curve in taking advantage of improved circumstances. It is notable, for example, that BMW, one of the major companies involved in using training lay offs, was among the first motor manufacturers to have announced since the recession a significant investment in the manufacture in SA of new generation vehicles (in this case an investment amounting to R 2.9bn). BMW did not retrench workers but rather used the training lay off facility to upgrade skills needed for its new project.

Mr Speaker, although our short term response has cushioned us to some degree from the ravages of recession, the recession has also highlighted the need for us to accelerate efforts to bring about structural change that will place our economy on a more labour absorbing growth path. We need to make ourselves less vulnerable to the vagaries of cycles and bubbles originating elsewhere. We also need to accelerate structural changes to our growth path in order to achieve our manifesto commitment of creating decent work for our people.

Even before the recession, when our economy grew at the highest level for the longest sustained period, since any time post World War two, unemployment never fell to below 23% of the economically active population on the strict definition. This points to the stark reality that the unemployment problem we face in South Africa is fundamentally structural rather than cyclical in nature.

In a nutshell, the accumulation path in South Africa under colonialisation and in the early years of apartheid depended upon drawing large numbers of low paid African people into unskilled work in mining and other primary sector activities. The notorious migrant and contract labour systems were the most visible manifestation of this. From the mid 1970's onwards, however, as a result of a combination of the gold mining industry having passed its prime and increasing mechanization in both mining and agriculture, we witnessed the expulsion and later marginalisation of former unskilled migrant workers from employment. While our economy made important advances during the past 15 years of our democracy, we have not yet succeeded in bringing about structural changes on a scale sufficient to absorb those marginalised structurally unemployed people into new productive, income earning activities. That is the challenge that continues to confront us.

Mr Speaker, I want to suggest that there is sufficient evidence from economic history to support the proposition that there has been no case ever, anywhere (and the examples can stretch from the Principality of Venice in the 16th Century to China today) of an economy moving onto a growth path characterized by increasing (as opposed to diminishing returns) without identifying appropriate productive activities and then mobilizing support and human energy to bring those productive activities into operation.

On Thursday this week I will be making a statement in the House about the 2010/11-2012/13 Industrial Policy Action Plan which we will release thereafter. Next week we will engage the PC on the details of IPAP2 after which the Portfolio Committee will hold public hearings. Mr. President in the SONA you indicated that the IPAP would be a mechanism -one among several others-"to build stronger and more labour absorbing industries" as well as provide "a new focus on green jobs"

The new IPAP will include a combination of cross-cutting and sector specific actions. It will include proposals and action plans linked to defined time-frames aimed at bringing about a significant overhaul of procurement legislation and practices. This is aimed, amongst other things, at ensuring that we achieve a greater impetus for local manufacturing and job creation from the infrastructure investment programmes we will be undertaking. There will also be proposals and action plans to align the Competitive Supplier Development Programmes of some SOEs to a revamped National Industrial Participation Programme, to move a range of key purchases for infrastructure programmes to a long term, fleet procurement process and to boost the Proudly South Africa campaign. All of this will, we believe, create improved opportunities for local industries to supply a greater proportion of the inputs needed in ways that will boost decent employment. In the years ahead through these efforts we believe we will be able to position ourselves as a significant manufacturer of capital equipment for infrastructure projects, not just for the domestic market but also to service projects on the African continent and further afield.

We will also be putting forward new proposals, linked to time bound action plans, to enhance access to concessional funding for industrial development-focusing on the off-budget role of dfi's and particularly those involved in industrial and enterprise funding.

We will be signaling a more strategic use of trade policy instruments and standards to support local economic development and decent work.

These proposals will be operational generally across the board but will also be customized to meet particular needs of specific sectors.

As you indicated, Mr President, our proposals will be focused on particular high labour absorbing value added sectors, but IPAP will also seek to promote more labour absorbing, and hence decent work creating, activities in all sectors we work with. Mr President, you also mentioned "green jobs". Moving towards a greener economy is essential both to respond to our own domestic challenges of promoting greater energy efficiency and to the common global challenge to mitigate the threat of catastrophic climate change. In our efforts to create green jobs we will be responding to a global trend which recognises that there are also opportunities for new economic activity and decent jobs from "going greener". Through IPAP2, we will be proposing a number of first steps on a journey aimed at positioning ourselves at the front end of the curve on "green jobs". Again our approach will involve a combination of focusing on specific quick wins for immediate attention and promoting a broader pro-active involvement in greener productive activity across the board.

Further details on IPAP2 as well as our specific job targets will be provided later in the week.

In addition to IPAP, further work from within the economic cluster will identify a broader range of actions we need to take to place us on a growth path capable of meeting the challenge of creating decent work for our people. Within the dti, an additional priority focus will be enterprise development. In the course of this year, we will be stepping up our efforts to promote SMME development. Recognising that young people are disproportionately represented among the unemployed, we have begun a conversation with the NYDA with a view to aligning our efforts with those of this important agency. We will also be developing a new strategic thrust to promote cooperative development following highly productive engagements we have been involved in with NEDLAC partners. We are planning to take these proposals through the Cabinet process in the middle of this year.

Mr President, you are a hard taskmaster. The outcomes -based monitoring system your administration is developing is requiring not just delivery on activities of the sort that I have described but, more importantly, on concrete outcomes. While you have not yet finalised the outcome targets for the economic cluster, we know that you want us simultaneously to achieve ambitious outcomes in economic growth, increasing labour absorption and declining inequality. The three have not always gone together in the past. The challenge for us to do so now will be tough against the background of still fragile global economic conditions, but it is not unattainable . Other countries (and notably in recent times Brazil) have made progress on all three fronts simultaneously. That is what our people need and we dare not fail them.